SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the Quarter ended June 30, 2000. _______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______. Commission File Number - 0-8041 GeoResources, Inc. (Exact name of Registrant as specified in its charter) Colorado 84-0505444 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1407 West Dakota Parkway, Suite 1-B, Williston, North Dakota 58801 (Address of principal executive offices) (Zip Code) (Registrant's telephone number including area code) (701) 572-2020 ________________________________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____. ________________________________________ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 28, 2000 Common Stock 3,961,352 shares (par value $.01 per share) GEORESOURCES, INC. INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 (June 30, 2000 and December 31, 1999) Consolidated Statements of Operations 4 (Three months ended June 30, 2000 and 1999 and six months ended June 30, 2000 and 1999) Consolidated Statements of Cash Flows 5 (Six months ended June 30, 2000 and 1999) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosure about Market Risks 12 PART II. OTHER INFORMATION 12 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements GEORESOURCES, INC., AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 2000 1999 ASSETS CURRENT ASSETS: Cash and equivalents $ 594,754 $ 423,361 Trade receivables, net 974,242 991,153 Inventories 310,172 297,029 Prepaid expenses 12,707 17,257 Investments 106 106 Total current assets 1,891,981 1,728,906 PROPERTY, PLANT AND EQUIPMENT, at cost: Oil and gas properties, using the full cost method of accounting: Properties being amortized 19,915,997 19,664,222 Properties not subject to amortization 77,782 143,413 Leonardite plant and equipment 3,222,675 3,206,217 Other 733,813 709,443 23,950,267 23,723,295 Less accumulated depreciation, depletion, amortization and impairment (18,589,534) (18,271,169) Net property, plant and equipment 5,360,733 5,452,126 OTHER ASSETS: Mortgage loan receivable, related party 103,321 103,321 Other 43,362 44,487 Total other assets 146,683 147,808 TOTAL ASSETS $ 7,399,397 $ 7,328,840 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 490,600 $ 747,557 Current maturities of long-term debt 179,375 175,000 Accrued expenses 164,096 167,800 Total current liabilities 834,071 1,090,357 LONG-TERM DEBT, less current maturities 1,255,625 1,610,008 DEFERRED INCOME TAXES 222,000 166,000 Total liabilities 2,311,696 2,866,365 STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share; authorized 10,000,000 shares; issued and outstanding, 3,964,152 and 4,005,352 shares, respectively 39,642 40,054 Additional paid-in capital 721,860 776,259 Retained earnings 4,326,199 3,646,162 Total stockholders' equity 5,087,701 4,462,475 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,399,397 $ 7,328,840 See Notes to Consolidated Financial Statements. GEORESOURCES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 OPERATING REVENUES: Oil and gas sales $ 1,011,032 $ 599,881 $ 2,125,330 $ 933,603 Leonardite sales 191,725 158,888 318,645 254,021 1,202,757 758,769 2,443,975 1,187,624 OPERATING COSTS AND EXPENSES: Oil and gas production 386,500 278,139 820,167 477,369 Cost of leonardite sold 144,090 116,091 280,263 241,487 Depreciation and depletion 156,232 142,558 318,364 287,925 Selling, general and administrative 114,429 77,812 215,242 150,059 801,251 614,600 1,634,036 1,156,840 Operating income 401,506 144,169 809,939 30,784 OTHER INCOME (EXPENSE): Interest expense (42,931) (41,870) (84,388) (82,404) Interest income 8,165 4,521 12,636 7,569 Other income, net 4,525 6,841 9,850 14,666 (30,241) (30,508) (61,902) (60,169) Income (loss) before income taxes 371,265 113,661 748,037 (29,385) Income tax expense (34,000) (10,000) (68,000) -- Net income (loss) $ 337,265 $ 103,661 $ 680,037 $ (29,385) EARNINGS PER SHARE: Net income (loss), basic and diluted $ .08 $ .03 $ .17 $ (.01) See Notes to Consolidated Financial Statements. GEORESOURCES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 680,037 $ (29,385) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and depletion 318,364 287,925 Deferred income taxes 56,000 -- Other 1,125 1,130 Changes in assets and liabilities: Decrease (increase) in: Trade receivables 16,911 (97,407) Inventories (13,143) 87,388 Prepaid expenses and other 4,550 (1,016) Investments -- (54,855) Increase (decrease) in: Accounts payable (248,417) 157,504 Accrued expenses (3,704) (891) Net cash provided by operating activities 811,723 350,393 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (235,511) (82,698) Net cash used in investing activities (235,511) (82,698) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings -- 160,000 Principal payments on long-term debt (350,008) (183,498) Purchase of stock for retirement (54,811) (42,448) Net cash used in financing activities (404,819) (65,946) NET INCREASE IN CASH AND EQUIVALENTS 171,393 201,749 CASH AND EQUIVALENTS, beginning of period 423,361 40,673 CASH AND EQUIVALENTS, end of period $ 594,754 $ 242,422 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 84,388 $ 82,404 Income taxes 1,250 1,325 See Notes to Consolidated Financial Statements. GEORESOURCES, INC., AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In our opinion, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly our financial position as of June 30, 2000, and the results of operations and cash flows for the three months and six months ended June 30, 2000, and 1999. The results of operations for the periods ended June 30, 2000, are not necessarily indicative of the results to be expected for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, it is suggested that these financial statements be read in connection with the audited consolidated financial statements and the notes included in our Annual Report on Form 10-K for the year ended December 31, 1999. 2. Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements. 3. We assess performance and allocate resources based upon our products and the nature of our production processes which consist principally of oil and gas exploration and production and the mining and processing of leonardite. There are no sales or other transactions between these two operating segments, and all operations are conducted within the United States. Certain corporate costs, assets and capital expenditures that are considered to benefit the entire organization are not allocated to our operating segments. Interest income, interest expense and income taxes are also not allocated to operating segments. There are no significant accounting differences between internal segment reporting and consolidated external reporting. Presented below are our identifiable net assets as of June 30, 2000, and December 31, 1999: 2000 1999 Oil and gas $ 4,860,936 $ 4,894,495 Leonardite 1,335,738 1,417,100 General corporate activities 1,202,723 1,017,245 $ 7,399,397 $ 7,328,840 Presented below is information concerning our operating segments for the three- and six-month periods ended June 30, 2000, and 1999: Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Revenue: Oil and gas $ 1,011,032 $ 599,881 $ 2,125,330 $ 933,603 Leonardite 191,725 158,888 318,645 254,021 $ 1,202,757 $ 758,769 $ 2,443,975 $ 1,187,624 Income (loss) before income taxes: Oil and gas $ 498,226 $ 208,313 $ 1,046,519 $ 226,667 Leonardite 15,782 11,918 (23,120) (47,437) General corporate activities (112,502) (76,062) (213,460) (148,446) Other income and expenses (30,241) (30,508) (61,902) (60,169) $ 371,265 $ 113,661 $ 748,037 $ (29,385) ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion and analysis of financial condition and results of operations, and other sections of this report, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on management's beliefs, assumptions, current expectations, estimates and projections about the oil, gas and leonardite industry, the economy and about us. Words such as "may," "will," "expect," "anticipate," "estimate" or "continue," or comparable words are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, our actual results and outcomes may materially differ from what may be expressed or forecasted in our forward- looking statements. Furthermore, we undertake no obligation to update, amend or clarify forward-looking statements; whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere herein. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, changes in production volumes; worldwide supply and demand which affect commodity prices for oil; the timing and extent of our success in discovering, acquiring, developing and producing oil, natural gas and leonardite reserves; risks inherent in the drilling and operation of oil and natural gas wells and the mining and processing of leonardite products; future production and development costs; the effect of existing and future laws, governmental regulations and the political and economic climate of the United States; and conditions in the capital markets. We caution the reader that a number of important factors discussed herein, and in other reports filed with the Securities and Exchange Commission, particularly the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1999, could affect our actual results and cause actual results to differ materially from those discussed in forward-looking statements. Results of Operations - Three Months and Six Months Ended June 30, 2000, compared to Three Months and Six Months Ended June 30, 1999 Information concerning our oil and gas operations for the three months and six months ended June 30, 2000, is set forth in the table below: Oil and Gas Operations % Increase % Increase Three Months (Decrease) Six Months (Decrease) Ended From 1999 Ended From 1999 June 30, 2000 Period June 30, 2000 Period Oil and gas production sold (BOE) 40,224 (19%) 83,790 (5%) Average price per BOE $ 25.14 108% $ 25.36 141% Oil and gas revenue $ 1,011,032 69% $ 2,125,330 128% Production costs $ 386,500 39% $ 820,167 72% Average production cost per BOE $ 9.61 72% $ 9.79 82% Oil and gas production sold for the three months ended June 30, 2000, was 9,000 barrels lower or 19% less than it was in the same period in 1999 for two primary reasons. The first is that production sold was at its highest quarterly level during the second quarter 1999 when we were selling oil from lease tank inventory after prices had increased from their lower levels in 1999. Second, we have not drilled a new well for additional oil production since the Oscar Fossum H4 in the fall of 1997, and the steady normal decline of our wells lowers production over time. During 1998 and 1999, production was maintained with additional oil from acquisitions, and we expect these acquisitions will keep 2000 production in the range of what it had been in the last two years. Production sold for the six months ended June 30, 2000, was 4,800 barrels lower or 5% less than it was in the same period in 1999. We believe the decrease in first half 2000 production sold was much less affected by sales of oil from inventory than was second quarter alone and should better reflect what we expect oil volumes to do during the remainder of the year. The average oil price for the second quarter 2000 advanced to $25.14 per BOE or 108% higher than the same period in 1999. Stable high prices this year brought the 2000 first half average oil price up to $25.36 or 141% higher than it was in the same period in 1999. Oil and gas revenue increased $411,000 or 69% for the three months ended June 30, 2000, compared to the same period in 1999. This increase was due to the 108% higher average price per BOE, and in spite of the 19% lower volumes sold, previously discussed. Oil and gas revenue for the six months ended June 30, 2000, increased $1,192,000 or 128% compared to the same period in 1999. This increase was also due to the higher oil price and the nearly stable volume sold in the first half 2000 compared to that same period in 1999. The fluctuation in oil prices for the three- and six- month periods ended June 30, 2000, resulted from steadily increasing world oil prices throughout all of 1999 that reached relatively stable high levels of about $30 per barrel on the NYMEX (New York Mercantile Exchange) during the entire first half of 2000. We expect our average oil price for the rest of 2000 could easily decline somewhat from first half 2000 levels but do not believe any moderate change in prices would have a large negative impact on our operations or financial condition. Production costs for the three months ended June 30, 2000, increased $108,000 or 39% compared to the same period in 1999 due largely to production taxes which increase proportionately with the oil selling price and due to our desire to dedicate more funds to repairs and maintenance of existing wells and facilities while oil prices remained high. Production costs for the 2000 six-month period increased $342,000 or 72% over the same period in 1999 for the same two reasons the three-month period costs were higher, but they increased to a greater extent because first quarter 2000 production costs were even higher due to the additional factor or having significantly more wells producing in first quarter 2000 compared to first quarter 1999. Production costs expressed on a per equivalent barrel basis for the three-and six-month periods were 72% and 82% higher, respectively, due to the production costs factors discussed above. Readers should be advised that the revenue and cost comparisons existing in the second quarter and first half of 2000 compared to the same two periods in 1999 are significantly skewed due to radically opposed oil price environments. During the 1999 periods, oil prices were relatively low compared to those in recent years and the 2000 periods had oil prices higher than have been typical for many years. These results demonstrate the significant impact that widely fluctuating oil prices have on our operations. Through June 30, 2000, we have not initiated any drilling for the year; however, we did acquire two additional productive properties both effective June 1, 2000, in two separate transactions. We continue to evaluate both further acquisitions and the drilling of new wells to increase reserves and production. During the second quarter 2000, we also maintained water injection into our South Starbuck Madison Unit (SSMU), which is a secondary recovery waterflood designed to increase production from one of the fields we acquired in 1998. No increased oil production has resulted from this project yet, but our expectation is that we could see that start by the end of this year. Information concerning our leonardite operations for the three months and six months ended June 30, 2000, is set forth in the table below: Leonardite Operations % Increase % Increase Three Months (Decrease) Six Months (Decrease) Ended From 1999 Ended From 1999 June 30, 2000 Period June 30, 2000 Period Leonardite production sold (tons) 2,164 21% 3,680 24% Average revenue per ton $ 88.60 -- $ 86.59 1% Leonardite revenue $ 191,725 21% $ 318,645 25% Cost of leonardite sold $ 144,090 24% $ 280,263 16% Average production cost per ton $ 66.59 3% $ 76.16 (6%) Leonardite production sold increased 371 tons or 21% and 708 tons or 24%, respectively, for the three- and six-month periods ended June 30, 2000, compared to the equivalent periods in 1999. We believe these increases are due to increased product demand associated with rigs drilling in the gulf coast area. Leonardite revenue increased $33,000 or 21% and $65,000 or 25%, respectively, for the three- and six-month periods ended June 30, 2000. These increases are due to the higher sales discussed above. Revenue per ton for the three- and six- month periods ended June 30, 2000, were essentially stable with the same periods in 1999. Cost of leonardite sold increased $28,000 or 24% and $39,000 or 16% for the three- and six-month periods, respectively. Most of the cost increases were related to the higher volume of leonardite sold in both periods. Inventory levels were also reduced due to the increased demand. Average per ton production costs for the three months ended June 30, 2000, increased $2 per ton or 3%. Average per ton production costs for the six months ended June 30, 2000, decreased $5 per ton or 6%, due to the effects of fixed costs on higher sales levels. Consolidated Analysis Total operating revenues increased $444,000 or 59% and $1,256,000 or 106% for the three- and six-month periods ended June 30, 2000, compared to the same periods in 1999. This increase was due to higher oil prices, previously discussed. Total operating expenses increased $187,000 or 30% and $477,000 or 41% for the three- and six-month periods of 2000, respectively, compared to the same periods in 1999. These increases were primarily due to increased oil and gas expenses discussed above. Operating income increased to $402,000 and $810,000, respectively, for the three- and six-month periods ended June 30, 2000, compared to an operating income of $144,000 and $31,000 for the same periods in 1999. After provisions for the non-operating expenses and income taxes, the result of consolidated operations yielded a net income of $337,000 or $.08 per share and $680,000 or $.17 per share for the three- and six-month periods ended June 30, 2000, compared to a net income of $104,000 or $.03 per share and a net loss of $29,000 or $.01 per share for the same periods in 1999. Liquidity and Capital Resources At June 30, 2000, we had working capital of $1,058,000 compared to working capital of $639,000 at December 31, 1999. Our current ratio was 2.27 to 1 at June 30, 2000, compared to 1.59 to 1 at year-end 1999. Net cash provided by operating activities was $812,000 for the six months ended June 30, 2000, compared to $350,000 for the same period in 1999. Cash was utilized to make payments of $236,000 for additions to property, plant and equipment, $350,000 for payments on long-term debt and $55,000 for stock repurchases. The $350,000 payment on long-term debt included a prepayment of $263,000 to payoff our 1995 oil and gas loan. We believe our future cash requirements can be met by cash flows from operations and, if necessary, borrowings on our existing line-of- credit. Future cash requirements might also be provided by possible forward sales of oil reserves or additional debt or equity financing. ITEM 3. Quantitative and Qualitative Disclosure about Market Risks Because we qualify as a small business issuer, disclosure regarding this item is not required. PART II. OTHER INFORMATION Item 1. Legal Proceedings. On May 12, 1989, we filed an action in Burleigh County District Court, North Dakota, against MDU Resources Group, Inc., a Delaware corporation, and Williston Basin Interstate Pipeline Company, a Delaware corporation. The Complaint related to, among other things, breaches of a take or pay natural gas contract and attempts by the defendants to coerce us into modifying the contract. The defendants answered the Complaint on June 1, 1989. Afterward, no further materials were filed with the court, but we believed that the case remained pending. We contacted the attorney who filed the action to assess the status and request further prosecution of the case. After several months of inaction regarding the case, we contacted the court in September 1996 and were informed by the court that the case had been dismissed in 1991. On January 15, 1997, we refiled our action against MDU Resources Group, Inc. We cannot predict the outcome of this action, although we intend to pursue its available remedies. Other than the foregoing legal proceeding, we are not a party, nor is any of our property subject to, any pending material legal proceedings. We know of no legal proceedings contemplated or threatened against us. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submissions of Matters to a Vote of Securities Holders. Our Annual Meeting was held on June 8, 2000. Directors elected were Duane Ashley, Dennis Hoffelt, Paul Krile, Cathy Kruse, and J. P. Vickers. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) For a list of our exhibits, see Item 14(c) of our Annual Report on Form 10K for the fiscal year ended December 31, 1999, which is specifically incorporated herein by reference. A financial data schedule (Exhibit 27) is attached hereto. All other required exhibits are inapplicable or information required thereby is readily apparent in the Form 10-Q. (b) No reports on Form 8-K were filed during the fiscal quarter ended June 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GEORESOURCES, INC. August 11, 2000 /S/ J. P. Vickers J. P. Vickers Chief Executive Officer Chief Financial Officer